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Permanent Life Insurance

Permanent life insurance, also referred to as whole life insurance, is designed to provide protection for your whole life. As long as the premium payments are made, it will continue to provide protection and it can never be cancelled by the insurance company. As the graphic illustrates, a typical whole life policy starts out providing a level death benefit that. When a level premium is paid over time, the death benefit will increase in a whole life policy. This is due to the cash value element of whole life which guarantees a minimum rate of growth on the portion of the premium that isn’t applied to the cost of insurance. Because there has to be a certain gap (see diagram below) between the cash value and the death benefit, the cash value growth automatically pushes the death benefit higher.

Quick Comparison of Term versus Whole Life

Term Life Insurance

Whole Life Insurance

Provides coverage for a specific period of time

Premiums are lower at time of purchase but can increase with age based on term duration

Stays in effect as long as premiums are paid

No cash value accumulation

Also referred to as “permanent” life insurance

Premiums higher than term but usually level for life

Stays in effect as long as premiums are paid

Pays the monetary value of the policy upon death of policyholder – monetary value can grow over time

Accumulates cash value that can be accessed through loans, withdrawals or to reduce/eliminate premium payments

Purchasing Life Insurance

Once you initiate the buying process with a life insurance company, the process takes on a life of its own. It begins with the completion of an application, so it is helpful to have all of your financial and medical information at hand. The application will ask you about your current financial situation and it will inquire about your medical history. You will also need to agree to a release of your medical records.

The application is also where you will begin to piece together the different components of your policy, including the death benefit amount, your beneficiaries, policy riders, dividend options, and you mode of payment.

The application is submitted for review by underwriters. If a medical exam is required (this will depend on your age, the amount of life insurance, and your medical history), it is scheduled. The exam is usually done by a paramedical professional who comes to your home or office. Your exam results are submitted to the underwriters for review. After all of the medical records and the exam have been reviewed, the policy is approved and then issued when a final design has been settled on by you. From the time of application to the time of policy issue it can take from 60 to 90 days on average depending on how quickly your medical records are transferred.

After you receive the policy and pay the first months’ premium, you have a free look period of 30 days to carefully review the contract and the policy provisions.